by Vance R. Parker JD, MBA | Jan 21, 2019
WTOB FM/AM Radio in Winston-Salem, NC interviews elder, special needs, and estate planning attorney Vance Parker about how a caregiver agreement allows a senior to transfer assets to a family member who is caring for him or her, in a way allowed by Medicaid. Without a caregiver agreement, if a senior pays a family member for taking care of him or her and Medicaid is later needed to assist with long term care expenses, Medicaid will often penalize such transfers as a gifts. A significant gift transfer penalty or penalties can jeopardize the senior’s ability to receive government help for long term care.
Using a caregiver agreement represents the best way to document senior payments made to a family caregivers in return for care. Such agreements are recognized by Medicaid if drafted and used properly,
Vance talks with WTOB Radio every Tuesday at 4:38 pm, educating the public about elder and special needs law, and estate planning topics.
by Vance R. Parker JD, MBA | Jan 2, 2018
CATEGORIES: Elder Law, Special Needs Law, Winston Salem, North Carolina, NC.
Family caregivers may provide essential care to disabled seniors, or to special needs/disabled adults of any age. Such family care may allow the senior or special needs adult to remain in the home environment that he or she prefers, and can provide numerous other benefits.
If the senior or special needs adult has available funds, it may make sense for them to pay the family caregiver for those services. But if the disabled adult may need future Medicaid benefits, improperly documented transfer of the disabled adult’s assets to a family member (to compensate for care services) may be viewed by Medicaid as a sanctionable gift transfer. Such transfers violate Medicaid’s 5-year lookback provisions, which penalize the disabled adult for any gifts made during that time.
Family Members May Create Valid and Enforceable Contracts With Each Other
Our federal and state legal system allow family members to create valid and enforceable contracts with each other.
Likewise, Medicaid (and other public benefits programs) also allow a disabled adult to transfer assets to a family caregiver in return for services. Specifically, the Health Care Financing Administration (HCFA), in Transmittal No. 64, Section 3258.1.A.1., provides that relatives and family members can be paid for care provided to loved ones, and that such payment shall not result in a penalty period, provided that fair market value compensation has been paid to the caregiver for the services rendered. A written agreement, which should already be in place at the time care services are provided, is suggested as acceptable proof of such an arrangement.
Types of Services Documented by a Care Agreement
Care agreements (caregiver agreements) are quite flexible, and can be tailored to meet client needs. An elder law attorney who structures a care agreement for a disabled adult (the “Principal” in the agreement) may include the following types of care services to be provided by the “Caregiver”:
- Monitoring physical and mental health;
- Finding, providing, and managing appropriate medical and dental care providers;
- Providing assistance with activities of daily living (ADLs), such as bathing, toileting, continence, dressing, feeding, and transferring;
- Providing personal hygiene services such as assistance with haircare, shaving, fingernail and toenail care;
- Assisting with personal shopping;
- Providing nutrition and meal services;
- Providing laundry services;
- Providing housecleaning services;
- Providing visitation, socialization, and entertainment services;
- Providing social services advocacy, and government services advocacy;
- Serving as a spokesperson;
- Providing financial management services.
Real Property Upgrades, Rent, Utilities, and Upkeep
If the disabled adult is living within the caregiver’s home, the following types of non-caregiving provisions may be added to the care agreement, in order to provide compensation documentation for other benefits provided by the caregiver to the disabled adult:
- Reimbursements for improvements made to the home in order to accommodate the disabled adult;
- Rent proportional to the amount of the residence occupied by the disabled adult;
- Proportional compensation for utilities and housing upkeep costs.
Tax Issues
The IRS and the NC Department of Revenue normally view the caregiving relationship formally (as an employer/employee or employer/contractor relationship). Funds received by the caregiver are typically classified as taxable income, with the disabled adult potentially subject to employer rules and procedures with respect to reporting, compensation, and taxes.
A family using a care agreement (or entering into a compensated care relationship) should seek ongoing advice from a CPA or other appropriate tax professional, with respect to the care agreement and employment relationship.
Fair Market Value
As mentioned above, the compensation to the caregiver must be set at fair market value for the services performed. The caregiver should keep and maintain a daily journal detailing the care he or she provides to the disabled adult, noting the time spent on each activity.
Other Benefits
Social Security Credits
A family member who either leaves outside work (either wholly or partially), or does not seek work, in order to care for a disabled relative may then stop receiving Social Security work credits. Such credits may be essential to maximizing Social Security retirement benefits for the caregiver.
In using a care agreement, where a caregiver consistently reports to the IRS her income received for taking care of a disabled relative, the caregiver keeps adding Social Security credits to her employment record. This helps insure that the caregiver will maximize her Social Security retirement benefits as much as possible.
Transparency for Other Family Members
It is common for only one family member to serve as primary caregiver for a disabled adult. A care agreement can reward the family caregiver for her time and effort. In addition, the care agreement helps clearly document how the disabled adult’s money is being spent on caregiving, so that all family members can better understand the care relationship, in a way that can prevent family disagreements or misunderstandings.
References
ElderCounsel
Andrew Olsen, Caregiver Agreements and Elder Care Mediation, in Top Elder Care Planning Strategies, (2016).
by Vance R. Parker JD, MBA | Sep 23, 2020
SENIOR GIFTING BACKGROUND
The United States has not strategically planned aging well. Because aging-associated long term care costs are so high, and good alternatives for ill aging people may no longer be available, Medicaid for the “Aged Blind and Disabled” in North Carolina is now accessed by not only lower-income applicants, but also many middle class applicants as well. If skilled nursing care is needed, the Medicaid program now finances approximately 51% of that care, with Medicaid paying 62% of U.S. nursing home care expenses.
The public does not normally walk around thinking about complex Medicaid gifting rules, and those whom have heard about Medicaid gift rules often follow bad advice. Gift-giving mistakes routinely cause caseworkers to deny Medicaid applications. Seniors now ill enough to need long-term care but who have gifted within 5 years of the Medicaid application, in a way that cannot be reversed, may find themselves “between a rock and a hard place”–unable to obtain Medicaid support for essential long term care services, and without enough funds to private pay for that care.
HOW MEDICAID’S 5 YEAR LOOK-BACK GIFTING RULES ARE APPLIED IN NORTH CAROLINA
Designed to prevent an individual from becoming “poor” enough to receive Medicaid support (“countable” assets valued at $2,000 or less), by gifting away assets to children or others prior to filing a Medicaid long term care application, Medicaid’s 5 year look-back rules are strictly enforced by the Medicaid caseworkers that review and evaluate those applications. If a Medicaid applicant (or his or her spouse) has gifted out of the applicant’s estate within 5 years prior to the Medicaid application, Medicaid may issue a potentially costly “gift sanction” to that applicant. Such a gift sanction disqualifies the Medicaid applicant (during the “Medicaid penalty period”) from receiving Medicaid long term care benefits for a certain number of months.
North Carolina uses a penalty divisor [$6,818 in 2020] to determine the number of months a Medicaid gift sanction recipient must private pay a skilled care facility or provider, before Medicaid will pay. For example, a North Carolina Medicaid applicant receiving nursing home care, who has gifted $100,000 to a child three years before applying for Medicaid long term care benefits, must private pay that nursing home for $100,000 / $6810 = 14.68 months before being eligible for Medicaid benefits.1
EIGHT COMMON SENIOR GIFTING MISCONCEPTIONS
- “A senior who gets too old or becomes ill should then gift away assets early to get ready for Medicaid.” Although it is important for a senior to plan for their potential long term care needs (and it may be impossible to tell what care may be needed in advance), the majority of seniors end up never using Medicaid to pay for long term care, and most age in their own residences. Even when Medicaid is needed to pay for long term care expenses, higher quality facilities either require private pay, or require some period (one year for example) of private pay before allowing a senior to convert to Medicaid reimbursement. Most seniors should thus keep their own money for themselves and their spouses (and not gift it away) to continue to support retirement, or to help self-finance future care (if needed.) If a senior already has enough assets to fund the rest of his or her retirement and medical care plus enough to transfer to children or others, or wants to better asset-protect real property for later transfer to heirs, then an elder law attorney may employ advance Medicaid planning or an asset protection trust (APT) to help preserve family assets. If a crisis requires a senior to quickly become Medicaid-qualified, an elder law attorney may be able to utilize Medicaid rules to transfer assets to a spouse or make them noncountable without gifting, in order to help the Medicaid applicant become qualified while preserving family assets at the same time.
- “If a senior gives family members gifts of no more than $15,000 each, that is OK.” Because it has to do with “gifts”, many people think that the IRS annual gift tax exclusion limit ($15,000 per individual recipient or donee in 2020) creates a universal gift-giving rule for government programs. This IRS rule, which provides a “safe harbor” for making individual gifts before a federal gift tax return must be filed, has nothing to do with Medicaid (which is run at the federal level not through the U.S. Department of the Treasury/IRS, but through the U.S. Department of Health & Human Services.) Medicaid may instead penalize gifts of any amount, made out of a senior’s estate.
- “A gift to charity is always OK.” This is incorrect. When reviewing an application, Medicaid assumes that any gift, including a gift to charity, is given with the intent to “spend down” assets to meet the Medicaid long term care applicant’s countable asset limit. Although in some cases Medicaid will exempt gifts if a Medicaid applicant has a long-term history of giving to a charity on a regular basis (and those gifts do not appear to have been intentionally made in order to qualify for Medicaid), a large one-time donation will likely not be exempted. It may thus be better for a senior to plan large charitable gifts through their will or trust, to take place after the senior has passed away.
- “It’s OK to manage a senior’s assets as a joint account owner on a senior’s bank account.” Although this common practice may be legal, it can create real problems for a Medicaid applicant. A Medicaid caseworker may view a non-spouse joint account owner on a senior’s account as having received a 50% gift of the senior’s account assets. Caseworkers are taught to look for gifts, and may search with even greater scrutiny for gifts made to a non-spouse joint bank account owner (whom the caseworker may unfortunately suspect, based on the caseworker’s real world experience, to be improperly converting the senior’s assets to the joint account owner’s own use.) It’s much better instead to manage senior assets using a financial or general/durable power of attorney, or through a trust.
- “It’s OK to give my caregiver cash, so my caregiver can make purchases for me.” A Medicaid caseworker will most likely first view a senior’s cash transfers to non-spouse others as gifts. It may be difficult for the senior to then later prove otherwise, particularly without good documentation. It’s much better for the senior or the senior’s legally authorized financial agent or trustee to instead pay for goods or services benefitting the senior directly with the senior’s bank account check or credit card, then carefully file and save all receipts.
- “It’s OK to pay a family member to care for me.” A Medicaid caseworker will likely first view this arrangement as a subtle way to make gifts to the designated family caregiver. Establishing a caregiver agreement to formally document the family care relationship first, and properly keeping a time log documenting the family member’s daily caregiving services, provides more acceptable Medicaid documentation.
- “It’s OK to sell the senior’s car to the senior’s grandchild for $500.” If the market value, or the “book value” of the car is actually higher than $500, this strategy will not work. When later evaluating such an undervalued sale from the Medicaid applicant’s estate, Medicaid may then subtract $500 from the actual market value or book value of the car, and count the difference as a gift to the grandchild. Similar undervalued transfers of any senior asset, to anyone other than a spouse, may create a later Medicaid gift penalty placed on the senior Medicaid applicant.
- “I should gift the family farm to my children to prevent Medicaid from getting it.” If it is unlikely that Medicaid will be needed to support long term care within the next five years, placing the farm in a properly structured asset protection trust (APT) or similar Medicaid Asset Protection Trust (MAPT) may lower future family capital gains taxes, and can asset-protect the family farm for children and grandchildren (advantages which are not available through gifting.) To make real property noncountable in many North Carolina counties, or to protect against Medicaid estate recovery less than five years before Medicaid will be needed, properly reclassifying (consult an elder law attorney for assistance) the real property as “joint with rights of survivorship” (JTWROS) real property, and creating proper Medicaid documentation, may both make the real property noncountable, and protect it against Medicaid estate recovery, without creating a later Medicaid gift sanction.
Notes:
- Note that the number of days is determined here by multiplying .68 x 31 days = 21.08 = 21 days, i.e. the Medicaid applicant must private pay the nursing home for 14 months and 21 days before he or she would qualify for Medicaid benefits.
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